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TMI Blog2020 (11) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... ow the same principle of interpretation as followed in the case of expenses of freight, telecommunication etc., otherwise the formula of calculation would be futile. - IT(TP)A No.349/Bang/2014, IT(TP)A No.878/Bang/2014 - - - Dated:- 22-10-2020 - Shri B. R. Baskaran, Accountant Member And Smt. Beena Pillai, Judicial Member For the Appellant : Shri Jaya Krishna, A.R. For the Respondent : Shri Priyadarshi Mishra, D.R. ORDER PER B.R. BASKARAN, ACCOUNTANT MEMBER: These cross appeals are directed against the order dated 24- 04-2014 passed by Ld CIT(A)-IV, Bangalore and they relate to the assessment year 2005-06. 2. Both the parties have filed revised grounds of appeal. The revenue is contesting following issues:- (a) Whether the Ld CIT(A) was justified in directing deduction of Satellite link charges from Total turnover also while computing deduction u/s 10A of the Act. (b) Relief granted in respect of Transfer pricing adjustment. 3. The assessee is in appeal in respect of following issues:- (a) Whether the tax authorities are justified in deducting Satellite link charges from Export turnover while computing deduction u/s 10A of the Act. (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. iGate Global Solutions Ltd. 406 4.32 14. Flextronics Software Systems Ltd. 457.45 32.19 15. L T Infotech Ltd. 562.45 10.33 16. Satyam Computer Services Ltd. 3464.2 29.44 17. Infosys Technologies Ltd. 6859.7 42.83 Arithmetical Mean 26.59 6. The average margin of above said comparables calculated at OP/TC was 26.59% and at OP/OR was 21%. The TPO computed the transfer pricing adjustment as under:- Total Sales of the tax payer - 82,34,36,000 Total cost by applying margin of 21% 65,05,14,440 (ALP of cost) Actual cost incurred by the tax payer 70,10,27,000 Break up of Actual cost :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1 to 200 crores. The above said five companies are having turnover of more than 200 crores and hence the Ld CIT(A) held that these companies cannot be considered as comparable companies. 9. The assessee also sought exclusion of certain other companies on the ground of functional dissimilarity. The Ld CIT(A), however, rejected the same by following certain case laws. All those case laws had expressed the view that once a company falls under the category of software development services, they cannot be excluded merely on the reason that they are operating in different verticals. 10. The revenue is in appeal challenging the decision of Ld CIT(A) in excluding above said five comparable companies. The Ld D.R placed his reliance on the decision rendered by Tribunal in the case of Wills Processing services india (P) Ltd and also in the case of Societe Generale Global Solutions P Ltd and contended that the turnover filter is not to be applied. 11. On the contrary, the ld A.R supported the order passed by Ld CIT(A) on this issue. 12. We heard rival contentions and perused the record. The question of application of turnover filter was examined by the coordinate bench in a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant criterion to regard a company as not comparable, so long as the two companies are functionally comparable. If functions by two companies are identical then they have to be regarded as comparable. According to him therefore the CIT(A) was not justified in excluding 5 companies on the ground that their turnover was above ₹ 200 Crores and cannot be compared with the Assessee whose turnover was around ₹ 10.65 Crores. In support of his contention the learned DR placed reliance on the following decisions: Sl. No. Name of the case Citation Relevant paragraph 1. NTT DATA Global Delivery Services Ltd. v. Asstt. CIT [2016] 69 taxmann.com 7 (Bang. - Trib.) 23 24 2. LSI Technologies India Pvt. Ltd. v. ITO [2016] 70 taxmann.com 189 (Bang. - Trib.) 14.3 4. Societe Generale Global Solution Centre (P.) Ltd. v. Dy. CIT [2016] 69 taxmann.com 336 (Bang. - Trib.) 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose or comparison. He fairly admitted that there are differences of opinion amongst various benches of the Tribunal on the application of turnover filter and that some Benches have held that high turnover was relevant criteria for excluding comparable companies. His prayer in the alternative was for constitution of a special bench to resolve the conflict. 17.3 Per Contra the learned counsel for the Assessee submitted that ITAT Bangalore Bench in the case of Dell International Services India (P) Ltd. v. Dy. CIT [2018] 89 taxmann.com 44 order dated 13.10.2017, considered the various aspects of application of turnover filter for excluding companies and has noted that the first decision rendered on application of this filter was in the case of Genisys Integrating Systems (I)(P) Ltd. (supra) rendered on 5.8.2011. In the case of Dell International Services India (P) Ltd. (supra), the tribunal took note of a divergent view expressed by ITAT Bangalore Bench in the case of Robert Bosch Engg. and Business Solutions Ltd. v. Dy. CIT ITA No.1519/Bang/2013 order dated 13.9.2017 after considering the decision rendered by the Hon'ble Delhi High Court in the case of Chryscapita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal, when companies which arc loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun Bradstreet Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of ₹ 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study. 42. The Assessee's turnover was around ₹ 110 Crores. Therefore the action of the CIT(A) in directing TPO to exclude companies hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Director of Settlements A.P. v. M.R. Apparao [2002] 4 SCC 638. Countering the submission of the learned DR that the decision of the Hon'ble Bombay High Court rendered in the case of Pentair (supra) is not ratio decidendi as it was merely dismissal of appeal u/s.260A of the Act on the ground that no substantial question of law arose for consideration, learned counsel drew our attention to the decision of the Bombay High Court in the case of Pentair water India (P.) Ltd. (supra) paragraph 9, wherein the Hon'ble Bombay High Court after referring to a decision of the Hon'ble Delhi High Court rendered in the case of CIT v. Agnity India Technologies (P) Ltd. [2013] 36 taxmann.com 289/219 Taxman 26 (Delhi), clearly observed that turnover is obviously a relevant fact to consider the comparability. Our attention was also drawn to paragraph-3 of the decision rendered in the case of Pentair (supra) wherein the department specifically contended that the Tribunal erred in holding that size and turnover of a company are deciding factors for treating a company as comparable. According to him therefore it was not a case of merely dismissal of appeal u/s.260A of the Act as unadmitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rength, then the earlier view has to be followed as the later decision has to be regarded as per incuriam. The Hon'ble Supreme Court in the case of Sundeep Kumar Bafna (supra) held that a decision or judgment can also be per incuriam if it is not possible to reconcile its ratio with that of a previously pronounced judgment of a Co-equal or Larger Bench and when High Courts encounter two or more mutually irreconcilable decisions of the Supreme Court cited at the Bar, the inviolable recourse is to apply the earliest view as the succeeding ones would fall in the category of per incuriam. The following were the relevant observations of the Hon'ble Supreme Court: 19. It cannot be over-emphasised that the discipline demanded by a precedent or the disqualification or diminution of a decision on the application of the per incuriam rule is of great importance, since without it, certainty of law, consistency of rulings and comity of Courts would become a costly casualty. A decision or judgment can be per incuriam any provision in a statute, rule or regulation, which was not brought to the notice of the Court. A decision or judgment can also be per incuriam if it is not possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India (P.) Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has relied upon certain case laws and held that the functionality difference cannot be a criteria to exclude the companies. 15. We have heard rival contentions and perused the record. We notice that the Bangalore bench of Tribunal has excluded above said four companies holding that these are not comparable companies in the case of CGI Information systems Management Consultants (P) Ltd (supra). The relevant discussions made by the Tribunal in respect of above said four companies are extracted below:- (A) Bodhtree Consulting Ltd:- 15.2. We have perused submissions advanced by both sides in light of records placed before us. We find that Ld.CIT(A) directed their exclusion of these comparables as they are functionally dissimilar to Assessee. Ld. CIT (A) observed that engaged in developing Software Products and for the reason that this company was rendering both SWD services and was also in providing Information Technology Enabled Services (ITES) and break up of revenues from diverse segments was not available. This Tribunal in case of Sysarris Software (P.) Ltd.vs.DCIT, reported in, (2016)67 taxmann.com 243, IT(TP)A No.612/Bang/2013 A. Y : 2005 - 06 wherein vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon decision of this Tribunal in case of ITO vs Net Devices Pvt.Ltd reported in [2015] 63 taxmann.com 94. 18.2. We have perused submissions advanced by both sides in light of records placed before us. Apart from the fact that, profit margins of these companies were abnormally high owing to extraordinary events that happened during the relevant previous year, these two companies have to IT(TP)A No.612/Bang/2013 A. Y : 2005 - 06 be excluded on the ground that these two companies are functionally dissimilar to that of the Assessee which is contract software service provider. As far as Exensys Software Solutions Ltd., is concerned, we have already held that Ld.CIT(A) was justified in excluding this company from the list of comparable companies on the ground that its profits were abnormally high owing to extraordinary event of merger/amalgamation that took place during the relevant previous year. (D) Thirdware Solutions Ltd:- 18.2.1. Ld.AR submitted that Thirdware Solutions Ltd., is engaged in multiple diverse activities in FY 2004-05 including (a) software development services under which the company provides application development, customer relationship manage ..... X X X X Extracts X X X X X X X X Extracts X X X X
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